Business

Saturday October 31, 2009

China’s ChiNext makes spectacular debut


SHANGHAI: The ChiNext stock market, China’s long-awaited Nasdaq-style second board, debuted on Friday with a speculative surge that more than doubled the price of all its 28 stocks – a good sign for firms lining up to list on China’s main stock markets.

The bubbly open to a market that hopes to turn local start-up firms into budding Microsofts or Intels, stirred concerns about speculative froth, but analysts said circuit-breakers would curb excesses while a steady supply of new shares would help keep mainland stock valuations under control.

“Almost all companies have now seen their share prices surging to excessive valuations, betraying rampant speculation,” said Zheng Weigang, head of investment at Shanghai Securities.

“Such intense investor enthusiasm bodes very well for upcoming IPOs on the market, but we expect speculation to die down after a couple of months or so, mainly because regulators are pushing large numbers of new shares into the market.”

ChiNext, part of the Shenzhen Stock Exchange in southern China, started out with market capitalisation more than 100 times that of China’s main Shanghai Stock Exchange when it launched in 1990, and vastly deepens China’s capital markets by expanding funding channels for small innovative firms.

Market players had expected at least one-third of the stocks would more than double on their first day of trading. It is typical for IPOs listing in Shenzhen to double or triple on their debut because of their low capitalisation.

ChiNext halted trade in all 28 new stocks at least once for 30 minutes during the morning session after they rose 20% from their opening price, triggering exchange circuit-breakers intended to curb excessive speculation.

About half the stocks were hit with a second 30-minute halt by extending their gains to 50%. A gain of 80% will result in a suspension until three minutes before the close.

Film maker Huayi Brothers Media Corp was the most actively traded stock, more than tripling to 88.72 yuan from an IPO price of 28.58 yuan, as investors were drawn by the famous celebrities associated with it.

The listees, almost all private firms in contrast with the state-owned companies that dominate China’s main board, completed IPOs over the past several weeks at prices averaging a hefty 56 times 2008 earnings. — Reuters

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